Ethics & Public Policy Center

Hey, Reagan Did That!

Pundits on left and right have panned President George W. Bush’s 2006 State of the Union Address for proposing a bipartisan congressional commission to reform Social Security, Medicare, and Medicaid. However, President Bush’s proposal is the most practical step possible to cool the overheated partisan debate, break the congressional logjam, and in 2007 — if it follows the timetable of President Ronald Reagan’s similar commission — deal with the three biggest long-term problems facing American families in decades.

Liberal Democratic congressmen stood and jeered when the president mentioned the new proposal, his own previous plan, and Congress’s failure to act on it, because they saw it as an admission of defeat. For the same reason, those who had supported the original plan, or something similar to it, were quick to denounce the commission.

This is exactly what happened after President Ronald Reagan suffered the humiliating defeat of his own administration’s plans to control rising Social Security costs by suspending cost-of-living adjustments and slashing benefits for early retirement. In December 1981, Reagan adopted a proposal from Sen. Bill Armstrong to create a bipartisan commission, headed by Alan Greenspan, to solve the problem. The members were appointed by House Speaker Tip O’Neill and Senator Majority leader Howard Baker. Sixteen months later, in April 1983, one of the most significant fiscal efforts of his administration was signed into law: the pay-as-you-go Social Security retirement system was balanced. The commission didn’t succeed in solving the problem indefinitely, partly because the commissioners focused most of their attention on balancing total 75-year income and outgo, not paying much attention to the year-by-year balance of the pay-as-you-go system. Today’s accounting is far more sophisticated. Imperfect though it was, the Greenspan commission did solve the problem for a generation, providing us with the chance to solve the problem for good.

The reason such a commission worked is that, while its members can do all the political grandstanding they want (as can lobbyists, advocacy groups, think tanks, etc.), the politicians have to come to the table, and, once at the table, they have to focus and agree on the numbers, describing the size of the problem and measuring any plans to fix it. The Greenspan commission worked also because of its good timing. Most of the preliminary work was done while members of the commission were campaigning in the 1982 elections (just as some of President Bush’s commission members will likely be running for reelection in 2006). Then, during the last period of political calm before the 1984 presidential election, the members took action in 1983. In the same way, Social Security, Medicare, and Medicaid could be debated this year, during the 2006 election campaign, and then, in 2007, after the election, Congress would have one last window of opportunity to act calmly and prudently before the 2008 national elections.

Assuming that President Bush’s commission will be able to reach agreement on balancing Social Security, Medicare, and Medicaid — doubtless a tall order — any such solution would expose the fact that at the moment, and for at least the next decade, the Social Security surplus is actually subsidizing the general operations of the rest of the federal budget. So solving these problems also requires balancing the rest of the federal budget, which would in turn make comprehensive income-tax reform not only desirable, but inevitable.

President Bush did not propose a bipartisan congressional commission on tax reform after last year’s panel of tax reform experts; but neither did President Reagan, and it didn’t stop his tax reform of 1986. In his 1984 State of the Union address, he announced that he was asking his Treasury secretary “for a plan of action to simplify the entire tax code so that all taxpayers, big and small, are treated more fairly.” When he added that he wanted the proposals by the following December, that announcement too was greeted with jeers, again led by Democrats, who saw it as an obvious political ploy to avoid the issue. But President Reagan knew exactly what he was doing. The Treasury plan was made on time, President Reagan sent it to Congress, and it had the effect, just like the bipartisan Social Security commission, of requiring action rather than grandstanding from Congress. When it arrived, the Treasury plan was countered with Democratic and Republican Party alternatives (the latter of which I had a hand in putting together), which were specifically designed to influence the final outcome. The result was the bipartisan Tax Reform Act of 1986, which cut tax rates across the board and paid for it by closing loopholes.

That’s how President Reagan managed to get a fractious, partisan Congress to enact his two biggest fiscal achievements. And in both cases, the very members of Congress who had led the jeers when Reagan announced the initiatives jockeyed for position on the podiums when the legislation was signed, so that they, too, could bask in Reagan’s reflected glory.

Let’s hope that President Bush’s new commission has the same happy result.

— John D. Mueller is director of the Ethics and Public Policy Center’s Economics and Ethics Program. From 1979-1988 he worked for then-Congressman Jack Kemp, mostly as economic counsel to the Republican Conference (caucus) in the House of Representatives.